Articles Posted in Litigation/Business Trials/Business Lawsuits/Business Litigation

Two companies entered into an exclusive distribution agreement for a medical bed that was marketed to hospitals and long term care facilities. The agreement contained a provision automatically extending the exclusivity period if the distributor agreed to purchase at least $200,000 of beds in 2011. Though the CEO of the distributor orally agreed to purchase $800,000 worth of beds in December 2010, the manufacturer still attempted to cancel the agreement six months later and enter into an exclusive agreement with a competitor of the distributor. The court found that damages from this breach were foreseeable and consequential under New York law, and awarded the distributor just over $1 million as a result.

VitalGo manufacturers a hospital bed called the Total Lift Bed that can incline to a near 90-degree angle with the occupant harnessed and upright. The bed is used by hospitals when treating obese and elderly patients. The most expensive models of the bed can exceed $10,000. Kreg Therapeutics, Inc. sells and rents specialty medical equipment to medical providers. It sought a distribution arrangement with VitalGo for the beds.

The companies negotiated and entered into an agreement in December 2009. Kreg received exclusive distribution rights in Indiana, Illinois, Wisconsin, and Atlanta, Georgia. The exclusivity lasted until 2011, but the contract provided for an extension of the period. Kreg could obtain an extension by choosing to make a minimum purchase commitment of $200,000 in each of its four territories before January 2011. If Kreg did so, the exclusivity period automatically extended for an additional year. Six months after signing the initial agreement, the two companies added an amendment. The amendment granted Kreg exclusivity in several new territories, including parts of Florida, New Jersey, and St. Louis, Missouri. Kreg gained exclusivity in these territories through May 2012. The amendment did not, however, specify whether the new date applied to the original territories as well.

In June 2011, Ohad Paz, VitalGo’s CEO and Managing Director, emailed Craig Poulos, Kreg’s President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. Kreg responded that it was willing to make minimum purchase commitments for the remainder of 2011, but that it wanted an update on design problems that Kreg had raised with VitalGo. A week later, RecoverCare, a competitor of Kreg, issued a press release announcing a nationwide exclusivity arrangement for the TotalLift bed. VitalGo and RecoverCare entered into a multi-year agreement in August 2011. In September 2011, Kreg requested five new beds from VitalGo, and VitalGo refused to fill the order. Kreg then filed suit. Continue reading ›

Litigation can be an expensive proposition. It used to be that a company with a great claim may not have had the ability to assert that claim because it lacked the ability to pay for the litigation it would take to enforce its rights. Commercial litigation funding has changed this.

Commercial litigation funding (also known as litigation finance) is the provision of capital to a plaintiff in exchange for a portion of any future settlement or judgment. Litigation funding is not a loan because it is non-recourse, meaning the plaintiff does not owe anything unless it recovers in the underlying lawsuit. It is this non-recourse aspect of litigation funding that causes some companies that have the means to fund their own litigation to turn to litigation funding as a means of managing the risk of litigation. There are myriad other reasons companies turn to litigation funding as well. It helps businesses avoid tying up capital that can be used as working capital during the pendency of the litigation. It reduces the risk of a company being forced to accept a low-ball settlement offer as a result of running out of money to fund a lawsuit. On a related note, it grants access to justice by permitting the proverbial Davids take on the proverbial Goliaths without fear of being spent out of the lawsuit. It also allows attorneys to take on cases that they wouldn’t otherwise be able to take for clients who have great claims but do not have the money to fund a protracted lawsuit. Continue reading ›

Where an asset purchase agreement between two companies did not contemplate the forfeiture of an entire reserve payment as a result of an audit of assets taking one month longer than originally contemplated, and such a forfeiture would result in a windfall for one of the parties.

ARC Welding Supply Co. was a distributor of compressed gases and welding supplies in Vincennes, Indiana. As part of an asset purchase agreement American Welding & Gas, Inc. paid ARC $1,534,796.06 for ARC’s assets, of which the primary assets where its asset cylinders. Some cylinders were already rented to ARC’s clients, so determining the number of asset cylinders that could be transferred from ARC to American was difficult. As a result, American withheld $150,000 for 180 days to protect against a shortage of up to 1,200 out of a potential 6,500 cylinders.

American conducted an audit of the number of cylinders, beginning with those at ARC’s facility, and then those that were rented to existing clients. American did not visit every client, only those for whom rental records could not clearly indicate the number of cylinders in the client’s possession. The agreement originally specified that settlement would occur on or before April 15, 2015. Ron Adkins, American’s President, and CEO, informed ARC’s owner, Charles McCormick, that the audit was taking longer than expected and the overall count was shorter than expected. As a result, American wanted to extend the time for the audit as a means of locating every possible cylinder. At the conclusion of the audit in May 2015, the final number of cylinders was 4,663, 1,837 short of the estimated total of 6,500. As a result, American did not pay the $150,000 that was held back, and ARC filed suit. Continue reading ›

The district court granted summary judgment to a bank on a breach of contract claim where a bank customer was precluded from suing bank for payment of fraudulent checks because customer did not report fraud within 90 days of receiving statement containing copy of first fraudulent check, and account agreement specified that fraud was required to be reported within 90 days.

Designer Direct, Inc. has a bank account with PNC Financial Services Group, Inc. Three of Designer Direct’s officers are authorized signers on its bank account. Between October 2016 and May 2017, Designer Direct’s former office manager, Kristiana Ostojic, forged one of those officers’, Stephen Rebarchak, signature on thirty-nine checks drawn on the account. Each check was made payable either to Ostojic or KO Development. The sum total of the fraudulent checks was $185,421.94

Ostojic deposited each check at either US Bank or JP Morgan Chase. The checks were then eventually presented to PNC for payment and were processed during the normal course of business through an automated system. PNC mailed account statements to Designer Direct each month. Each statement identified checks drawn on the account by date, check number, and amount. PNC also included copies of drawn checks with each statement.

Rebarchak reviewed all of the statements sent by PNC but did not see the electronic check copies because Ostojic intercepted the online statements and removed the check images before he could see them. When Rebarchak did finally see one of the checks, in May 2017, he was immediately aware of the fraud and notified PNC the next day. Designer Direct eventually sued PNC in federal district court in the Northern District of Illinois for breach of contract, alleging that PNC breached the account agreement by failing to exercise ordinary care in the payment of the checks. Continue reading ›

Where a class of consumers sued an energy company for breach of contract, fraud, and unjust enrichment, the district court dismissed some, but not all, of the claims. The district court found that the consumers had sufficiently alleged that the energy company violated its agreement to charge rates for electricity based on market conditions and that the consumers had pled a claim for unjust enrichment in the alternative. However, the court found that the consumers failed to allege adequate details of a fraudulent scheme.

Verde Energy USA, Inc. was sued by a class of consumers in federal court for the Northern District of Illinois. The consumers alleged that Verde violated the Illinois Consumer Fraud and Deceptive Business Practice Act, breached its contract, or alternatively was guilty of unjust enrichment with respect to the class. The consumers’ complaint alleged that Verde had taken advantage of the deregulation of the Illinois energy market, convincing consumers to switch from their prior energy company to Verde by offering a teaser rate that was lower than the utilities’ actual rates for electricity. The consumers alleged that, after the teaser rate expired, Verde switched consumers to a variable rate that was not based on market conditions as required by the contract the consumers had with Verde. Continue reading ›

Where the mortgage on a development company’s property was mistakenly recorded as satisfied, and then later corrected, the mistaken release did not extinguish the debt, and the contract was still effective.

Trinity 83 Development borrowed $2 million from a bank in return for a mortgage on real property and a note. Five years later, in 2011, the bank sold both the mortgage and the note to ColFin Midwest Funding, who relied on Midland Loan Services to collect the payments due. Two years later, Midland recorded a “satisfaction” document indicating that all debts associated with the note and mortgage had been paid. This recording was in error, as the loan was still outstanding. Unaware of the mistake, Trinity continued making payments on the loan. Continue reading ›

Chicago’s elite Grace restaurant has been shuttered for nearly a year, but the acrimony surrounding its implosion continues to be played out in Illinois courts.

Grace closed abruptly in late 2017 amid a dispute between its star chef and owner, who is now suing the chef and former manager/sommelier for tortuous interference and breach of fiduciary duty.

Michael Olszewski, who opened the Randolph Street hot spot with Curtis Duffy and Michael Muser in 2013, claims Duffy and Muser worked at events in far-flung locations around the globe outside of their employment with Grace, ordered and shipped food on the restaurant’s accounts for these events without his permission or compensation to the business, according to the complaint filed in Cook County Circuit Court.

Olszewski’s suit also claims Duffy and Muser “hatched a scheme” to solicit Grace’s employees to leave the restaurant and thereby force its temporary closure, resulting in lost profits and severe damage to business expectancies. The lawsuit seeks compensatory and punitive damages for the harm caused by Duffy and Muser’s “egregious misconduct.”

Duffy’s culinary skills earned Grace three Michelin stars, making it one of only two Chicago restaurants to gain that distinction. Before the establishment closed, Duffy and Muser tried unsuccessfully to buy it from Olszewski. He accused Duffy and Muser of coming and going from Grace as they pleased, in Muser’s case taking spontaneous and unapproved vacations, with increasing frequency. Continue reading ›

The primary laws that govern the disclosures to shareholders and the marketplace include the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules adopted by the Securities and Exchange Commission (the “SEC”).  These laws have come subject to scrutiny in the Camping World Holdings, Inc. who suffered financial losses in excess of $100,000 due to a failure to disclose.  Some of their executives have been charged with failing to disclose material information during the Class Period, violating federal securities laws.

Generally speaking, causes of action have been interpreted by the federal courts to specifically set forth in the statutes and to address claims brought as class actions.  These types of claims are often brought forward and against the corporation, its directors and officers, purchasers and sellers of securities, persons otherwise having a duty to investors who participate in the alleged disclosure violation.  Sometimes accountants and underwriters and persons required to make public filings with the SEC.  The history behind it is entrenched in common law notions of disclosure claims such as fraud and negligent misrepresentation. Continue reading ›

There’s no doubt that self-driving cars will be the next big thing in the automobile industry, which is why Google got so upset when a former employee allegedly took trade secrets regarding their self-driving technology to a competitor.

Anthony Levandowski claims he has been working on technology for driverless automobiles since he was in college. He entered a self-driving motorcycle into the Pentagon’s first competition for driverless vehicles in 2004, when he was still a graduate student at the University of California in Berkeley.

In 2007, Levandowski started working for Google on their maps program. When Google gave the go-ahead to start experimenting with self-driving automobiles, Levandowski was one of the first people chosen for the team.

Levandowski left Google early in 2016 to start his own business, a driverless truck company named Otto. That company was bought by Uber, at which point Levandowski became the vice president in charge of Uber’s driverless vehicle project. Continue reading ›

Before now, if an organization had its trade secrets stolen, its only recourse was usually to bring an action against the perpetrator in state court under the Uniform Trade Secrets Act, which was adopted by most states to provide a uniform civil remedy for trade secret theft, or under state criminal laws. The only federal protection for trade secrets was criminal sanction under the Economic Espionage Act of 1996. That changed this May, when President Obama signed into law the Defend Trade Secrets Act, which gives owners of trade secrets a new federal civil cause of action for misappropriation of their proprietary information. The law is intended to provide an alternative to the current patchwork of state laws governing the issue, but not replace them; unlike the federal Copyright Act, for instance, DTSA does not pre-empt state law.

DTSA allows a plaintiff to seek relief in federal court for misappropriation of trade secrets “by improper means” related to a product or service in interstate or foreign commerce. Improper means is defined as theft, robbery, misrepresentation, espionage, or breach of a duty to maintain secrecy. The law establishes civil remedies such as injunctions and damages for actual loss and unjust enrichment, or a “reasonable” royalty where an injunction is not feasible. If a trade secret is “willfully or maliciously” misappropriated, damages may be doubled. Trade secrets are broadly defined to include all forms and types of information that the owner has taken reasonable measures to keep secret, and which derive independent, actual or potential economic value from being unknown to the public. Continue reading ›